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Three Essays on European Union Advances Toward a Single Currency and Its Implications for Business and Investors Charlotte Anne Bond Old Dominion University

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Three Essays on European Union Advances Toward a Single Currency and Its Implications for Business and Investors Charlotte Anne Bond Old Dominion University Old Dominion University ODU Digital Commons Theses and Dissertations in Business College of Business (Strome) Administration Winter 1998 Three Essays on European Union Advances Toward a Single Currency and Its Implications for Business and Investors Charlotte Anne Bond Old Dominion University Follow this and additional works at: https://digitalcommons.odu.edu/businessadministration_etds Part of the Finance and Financial Management Commons, International Business Commons, and the International Relations Commons Recommended Citation Bond, Charlotte A.. "Three Essays on European Union Advances Toward a Single Currency and Its Implications for Business and Investors" (1998). Doctor of Philosophy (PhD), dissertation, , Old Dominion University, DOI: 10.25777/mc19-6f14 https://digitalcommons.odu.edu/businessadministration_etds/77 This Dissertation is brought to you for free and open access by the College of Business (Strome) at ODU Digital Commons. It has been accepted for inclusion in Theses and Dissertations in Business Administration by an authorized administrator of ODU Digital Commons. For more information, please contact [email protected]. Three Essays on European Union Advances Toward A Single Currency and its Implications for Business and Investors by Charlotte Anne Bond A dissertation submitted to the Faculty of Old Dominion University in partial fulfillment of the requirements for the degree of Doctor o f Philosophy (Finance) Old Dominion University College of Business Norfolk, Virginia (December 1998) Approved by: Mohammad Najand (Committee Chair) \ tee Member) Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. UMI Number: 9921767 Copyright 1999 by Bond, Charlotte Anne All rights reserved. UMI Microform 9921767 Copyright 1999, by UMI Company. All rights reserved. This microform edition is protected against unauthorized copying under Title 17, United States Code. UMI 300 North Zeeb Road Ann Arbor, MI 48103 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. ABSTRACT Three Essays on European Union Advances toward a Single Currency and its Implications for Business and Investors Charlotte Anne Bond Department of Business Administration Old Dominion University Committee Chair: Mohammad Najand The first chapter examines the changes in various European currencies’ exchange rates through the time period 1980 through 1997. Specifically, we are interested to determine if there is any affect to the volatility of these exchange rates and specific events related to the advancement of European Unification. In order to move to a single currency it is imperative that the separate currencies become less volatile to facilitate the move to a single currency. In this study, we examine whether this is the case and discuss which currencies appear to display this behavior. It is observed that of the 14 currencies examined all but Ireland and Italy’s currencies see dramatic reductions in volatility. The second chapter examines the effects of announcements concerning European Monetary Union on the exchange rate volatilities of several European currencies. It is expected that when good news is portrayed in regard to a single currency, this will be considered bad news, thus eliciting a negative reaction. The currencies examined are the German mark, the Portuguese escudo, the Italian lira, the Greek drachma, and the Spanish peseta. In terms of volatility, a reaction to good news should be a reduction in volatility, as bad news should cause an increase in volatility. In total there are 22 announcements examined from January 1990 through September 1997. The German mark is observed to experience greater increases in volatility than decreases as does the Italian lira. Portugal and Greece appear to react more strongly to positive news in that the decreases in volatility are on average greater than the increases. In the third chapter, the reactions of volatility changes to the returns of American Depository Receipts of companies from European Union member nations are examined. It is examined whether announcements regarding European Monetary Union create a notable change in the volatility of returns of these instruments. If a single currency is viewed as good news for these companies, the volatility of the returns of these companies should decrease. If the advent of a single currency is bad news, the volatility of returns should increase. In total there are 10 announcements examined from January 1990 through September 1997. Of the 8 countries examined, Finland, France and the Netherlands display no notable reactions. Luxembourg witnesses the largest decreases in volatility around 6 of the ten dates examined. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. To Byron and Austen Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Acknowledgements Were it not for the assistance and patience of Mohammad Najand, this feat would have taken years if it had ever been completed. For this I am forever grateful. As well, I acknowledge the useful comments and moral support of Sylvia Hudgins and Vinod Agarwal. I thank you all. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. TABLE OF CONTENTS PAGE DEDICATION ....................................................................................................... iii ACKNOWLEDGEMENTS ......................................................................................... iv LIST OF TABLES ...................................................................................................... vii LIST OF FIGURES ....................................................................................................... viii CHAPTER I. Changes in European Currency Volatility as Related to Changes Occurring during Europe 1992 A. Introduction ........................................................................................................ 1 B. Literature Review .......................................................................................... 3 C. Data and Methodology i. Data ....................................................................................................... 8 ii. Methodology ........................................................................................... 9 D. Empirical Results .......................................................................................... 11 E. Conclusions ........................................................................................................ 17 II. Volatility Changes in European Currency Exchange Rates Due to EMS Announcements A. Introduction ........................................................................................................ 18 B. Literature Review .......................................................................................... 21 C. Data and Methodology i. Data ....................................................................................................... 25 ii. Methodology ........................................................................................... 26 D. Empirical Results .......................................................................................... 29 E. Conclusions ........................................................................................................ 33 III. Volatility Changes in European American Depository Receipt Returns Evidence from NASDAQ Market A. Introduction ........................................................................................................ 35 B. Literature Review .......................................................................................... 37 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. C. Data and Methodology i. Data ................................................................................................ 38 ii. Methodology .................................................................................. 39 D. Empirical Results ................................................................................... 43 E. Conclusions ................................................................................................. 47 REFERENCES ................................................................................................ 48 CURRICULUM VITA .................................................................................. I l l Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. LIST OF FIGURES FIGURE PAGE 1-1 Volatility: Austrian schilling ..................................................................... 53 1-2 Volatility: Belgian franc ..................................................................... 54 1-3 Volatility: Danish kroner ..................................................................... 55 1-4 Volatility: Finnish markka ..................................................................... 56 1-5 Volatility: French franc ..................................................................... 57 1-6 Volatility: German mark ..................................................................... 58 1-7 Volatility: Greek drachm a ..................................................................... 59 1-8 Volatility: Irish pound..................................................................................
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